THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

WOLF BLITZER, CNN ANCHOR: Happening now: The battle between Newt Gingrich and Mitt Romney heating up as the two Republican front- runners lob increasingly stinging barbs at each other.

Also, Rick Perry's surge in Iowa just three weeks and a day before the first major contest in the race for the White House.

Plus, President Obama marking the end of the war in Iraq, a war he once criticized as dumb. Has his opinion changed?

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

One of them is leading the Republican presidential pack. The other is bringing up the rear.

In this hour, Newt Gingrich and Jon Huntsman are facing off in a Lincoln-Douglas-style debate in New Hampshire, where the first-in-the- nation primary is just 29 days away. And with the calendar closing in, the verbal fireworks are flying between Gingrich and his nearest rival in all of the polls. We are talking about Mitt Romney.

CNN's Jim Acosta is with the candidates in New Hampshire right now. He has the latest for us -- Jim.

JIM ACOSTA, CNN CORRESPONDENT: Wolf, with the holiday approaching, the debate between Newt Gingrich and Jon Huntsman could easily be summed up as Newty vs. nice. But for the former speaker, the real fight is with Mitt Romney and it is anything but nice.

(BEGIN VIDEOTAPE)

ACOSTA (voice-over): There are enough journalists swarming around Newt Gingrich inside this New Hampshire pharmacy to give any candidate a migraine, just enough room to talk to the handful of voters and a parrot in the store.

But the real squawking in Gingrich's ear is coming from Mitt Romney, who said the former speaker should give up the big money he earned advising the housing giant Freddie Mac.

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: One of the things that I think people recognize in Washington is that people go there to serve the people and then they stay there to serve themselves.

QUESTION: Do you believe they should give that money back?

ROMNEY: Oh, I sure do.

ACOSTA: But Gingrich was ready for that one.

NEWT GINGRICH (R), PRESIDENTIAL CANDIDATE: But if Governor Romney would like to give back all of the money he has earned from bankrupting companies and laying off employees over his years at Bain, then I would be glad to then listen to him. And I bet you $10, not $10,000, that he won't take the offer.

ACOSTA: It come back double whammy, first hitting the former governor for his days downsizing companies at the private investment firm Bain capital and the second for Romney's high-stakes wager at Saturday's debate in Iowa.

ACOSTA: Romney who, tried to sound more down to earth at a New Hampshire lumber plant.

ROMNEY: I love the American people. I have said this before. I worry about the very poor and I want to make sure our safety net is there for the very poor.

ACOSTA: Also accused the former speaker of -- quote -- "erratic outspokenness" for his comment on Palestinian rights to their own country.

GINGRICH: Somebody ought to have the courage to tell the truth. These people are terrorists. They teach terrorism in their schools.

ACOSTA: But Gingrich emphatically told CNN he wasn't talking about all Palestinians when he made the remark.

QUESTION: Did you mean to say that all Palestinians were terrorists in the debate on Saturday night, Mr. Speaker?

GINGRICH: I didn't say that. That's absurd.

ACOSTA: A Gingrich spokesman later said the former speaker was referring to Palestinian militants launching rockets at Israeli targets. But the back and forth was enough to make anybody forget Gingrich is debating Jon Huntsman on this day.

(END VIDEOTAPE)

ACOSTA: Sometime after Christmas the Gingrich campaign says it'll borrow a page from John McCain and launch a Straight Talk Express-like bus tour. Gingrich will chat it up with the press just like McCain did four years ago. It's another opportunity for Gingrich to create a contrast with Romney, who likes to keep his distance from the press -- Wolf.

ACOSTA: Jim Acosta in New Hampshire for us.

Rick Perry is also taking Romney to task for that offer of a $10,000 bet. Take a look at his latest Internet campaign ad.

(BEGIN VIDEO CLIP, AD)

PERRY: I'm not in the betting business. The people of this country really want to get America back on track.

(END VIDEO CLIP)

BLITZER: Our own Lisa Sylvester, by the way, is taking a closer look at the facts behind that bet. Was Romney for an individual health care mandate? Who would have won the bet if they would have actually done it? We are digging deeper in our next hour and we will bring you the results.

Also, Rick Perry appears to be doing better somewhat in Iowa where the nation's first caucuses take place three weeks from tomorrow. Newt Gingrich remains in the lead in the new American Research group poll of likely caucus-goes with 22 percent, but his support is down from 27 percent last month. Romney is down a bit as well, coming in second with 17 percent, tied with Ron Paul. Perry though comes in at 13 percent, and that's up 5 percent for him since last month.

We are taking a closer look at GOP battle in our "Strategy Session" later this hour. Donna Brazile, Rich Galen are both standing by.

Other important news we're following today, he was a relatively unknown Illinois state senator, talking about President Barack Obama, when the Iraq war began in 2003. Now is the president presiding over the end of the conflict he so heavily criticized at one point?

Let's bring in our White House correspondent Dan Lothian.

Dan, the president warmly welcomed the Iraqi prime minister, Nouri al-Maliki, to the White House today. Tell our viewers who may have missed what was going on what happened.

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: Well, the president did talk about all of the progress that has been made inside Iraq. He talked about a new relationship which will be much different than it has been over the last nearly nine years or so.

We take a step back. There have been more than a million U.S. personnel both military and civilian serving in Iraq, now only a few thousand. All will be gone by the end of the year. But what will remain there are some big challenges as that country tries to establish democracy in a tough corner of the world. (BEGIN VIDEOTAPE)

LOTHIAN (voice-over): At Arlington National Cemetery, President Obama and Iraq's Prime Minister Nouri al-Maliki remembered the 4,500 troops who paid the ultimate sacrifice in a nearly nine-year war. Some of them are buried here.

That emotional moment marking the end of a divisive war followed a one-on-one meeting in the Oval Office and a news conference where the president touted a campaign promise kept to pull out all troops by the end of the year and discussed a new strategic relationship between the two countries.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The Iraqi people must know that you will not stand alone. You have a strong and enduring partner in the United States of America.

LOTHIAN: But it was a different tone from then state Senator Obama in 2002, when at an anti-war rally in downtown Chicago, he criticized the planned invasion of Iraq this way.

OBAMA: What I do oppose is a dumb war.

LOTHIAN: The president was asked if he still felt the same way.

OBAMA: I think history will judge the original decision to go into Iraq.

LOTHIAN: While there will be no military boots on the ground, the U.S. will still provide muscle with the sale of F-16s to replace Iraqi fighter jets destroyed in the war.

But these steps as Iraq moves to democracy don't erase some big challenges that lie ahead. There are concerns about whether Iraq can maintain its own security and a stable political system.

NOURI AL-MALIKI, IRAQI PRIME MINISTER (through translator): Iraq now has become reliant completely on its own security apparatus.

LOTHIAN: And there are a lot of questions about growing influence from Iran once U.S. troops pulled out completely.

OBAMA: His interest is maintaining Iraqi sovereignty and preventing meddling by anybody inside of Iraq. And I believe him.

(END VIDEOTAPE)

LOTHIAN: Now, Syria is also another concern. The Iraqi government has not been as forceful as the U.S. in criticizing the violent crackdown. In fact, today the prime minister saying he doesn't believe he has the right to call on a president to step down. Mr. Obama was asked about this. He described their differences as tactical and he said that he believes the prime minister is doing what he thinks is best for the people of Iraq -- Wolf.

BLITZER: It's pretty shocking though when you think about it, Dan. The only countries in the Arab League who are rejected these sanctions against Bashar al-Assad's regime in Damascus, Lebanon, which obviously Hezbollah has close ties with Syria, and Iraq. All the other members of the Arab League basically are with the U.S., the Europeans, the rest of the world, in condemning Bashar al-Assad, but Nouri al-Maliki in Baghdad refusing to do so.

We will discuss what is going on with Fouad Ajami in our next hour. Also, I write about this on my blog today, CNN.com/situationroom.

A new Gallup poll shows anti-incumbent attitudes the highest they have been in 19 years.

And 76 percent of voters say most members do not deserve reelection.

What's more, the anti-incumbent mood is seen across the political spectrum, Democrats, Republicans and especially independents.

Back in 2010, when Democrats lost 63 House seats to Republicans, voters were less negative than they are now.

So, that means our elected representatives ought to start packing up, right, and getting ready to leave town. Well, not so fast. After all, another recent poll put their job approval rating at an anemic 9 percent.

But as is historically the case, even though people think Congress is rotten, they don't necessarily feel the same way about their representatives.

This same poll shows 53 percent of these surveyed say their representative deserves to be reelected. Who are these people?

Makes it kind of hard to shake things up in Washington if people don't see that their own elected officials as part of the problem.

And that's the thing: Almost every single one of these people is part of the problem in some way, part of the dysfunctional mess that our government has become.

Congress can no longer even be bothered to pass a budget. They are looking at some year-end $1 trillion-plus catch-all spending bill. They can't be bothered to make any serious cuts to our skyrocketing national debt. They can't be bothered to do very much of anything when it comes to stuff like energy policy, for example. It a long list of things they can't be bothered with.

Instead, they just kick the can down the road on the real issues and focus on getting reelected instead, unless we stop them. Here's the question: If Congress is so bad, why do more than half of Americans say their own representative deserves to be reelected?

Go to CNN.com/caffertyfile. Post a comment on my blog. Or go to our post on THE SITUATION ROOM's Facebook page.

BLITZER: Good stuff, Jack. Thank you.

A surprise change in his support for President Obama. We will talk about that, a lot more with the independent Senator from Vermont Bernie Sanders. He wants a constitutional amendment to deal with money in politics.

Plus, as U.S. forces leave Iraq, a new force is moving in to protect Americans. We have details of the controversy of what critics are calling the State Department's private army.

(COMMERCIAL BREAK)

BLITZER: As the U.S. military winds down its mission in Iraq this month, President Obama told reporters he wants to make sure American civilians staying there -- and thousands of and thousands of them will be remaining at the U.S. Embassy in Baghdad, consulates around the country -- are safe.

As part of that effort, the State Department is deploying thousands of private highly paid security contractors. And this is a move that is stirring up huge controversy.

Our foreign affairs correspondent, Jill Dougherty, explains.

(BEGIN VIDEOTAPE)

JILL DOUGHERTY, CNN FOREIGN AFFAIRS CORRESPONDENT (voice-over): American troops are headed home for Iraq. But Americans civilians are staying, 15,000 to 16,000 of them, diplomats, business and development experts, financial and agricultural advisers working out of the massive U.S. Embassy in Baghdad, as well as posts in Irbil, Basra, Kirkuk.

HILLARY RODHAM CLINTON, U.S. SECRETARY OF STATE: It's never been done before. That is something that is a historical change.

DOUGHERTY: But those civilians, Secretary of State Hillary Clinton tells CNN, are going to be in danger.

CLINTON: The only way we can defend our people, protect them is through private contractors.

DOUGHERTY: Some critics are calling it the State Department's private army, approximately 5,000 security personnel, armed private contractors.

REP. JAN SCHAKOWSKY (D), ILLINOIS: We have a lot of evidence that actually our missions have been jeopardized by some of the cowboy-like activities and attitudes of these private contractors.

DOUGHERTY: Just the word "contractors" brings back the nightmare of Baghdad's Nisour Square where Blackwater security guards opened fire in a traffic circle in 2007, killing 17 Iraqi civilians. The State Department revamped procedures and since then, there have been no further incidents.

PATRICK KENNEDY, UNDER SECRETARY OF STATE FOR MANAGEMENT: The State Department has no howitzers and no counter rockets firing. We will not fire back. That is not a diplomatic activity.

DOUGHERTY: But the watch dog of how U.S. taxpayer dollars are spent in Iraq tells us he has other questions about how the State Department will handle its mission in Iraq.

STUART BOWEN, SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION: Our audit raises concerns about exactly that. And if the planning is not improved, if the oversight is not exerted, and if the metrics and milestones that we call for aren't implemented, then waste will occur.

DOUGHERTY: Bowen says last spring, the State Department stonewalled when he asked for information on a police development program. It took an obstruction letter to Secretary Clinton to get the department to comply, he says.

The Iraq mission will soon be on the State Department shoulders, and a foreign adviser to the State Department, to Congress and White House says stakes are enormous.

RICHARD FONTAIN, CENTER FOR A NEW AMERICAN SECURITY: After all of these years of fighting in Iraq, after all of the blood and treasure, after all of our country has done, the success or failure of that mission would turn on the ability of contractors to carry out their functions there.

DOUGHERTY (on camera): Another worry, the taxpayer dollars this is going to cost and the prospect that without careful supervision, some of that money could be wasted -- Wolf.

You probably know this because we have spoken on many occasions. I'm really worried about the safety of these thousands of American citizens, 16,000 or so, who are going to remain without any U.S. military presence for all practical purposes.

How dangerous will this environment for them be? Some think they are sitting ducks.

SUZANNE KELLY, CNN PRODUCER: You know, I don't think it's going to be any more dangerous than it has been for the last several years and that's because these private contractors are the ones who have already been protecting the State Department employees. You remember, Wolf, right after 2003 when the war first started, the military went to the State Department and said, we don't have enough people to protect you, you're going to have to do this on your own. And that's how this whole industry just ballooned.

So, I don't think it's going to be any more dangerous than it has been. But it's definitely going to continue to be dangerous, (INAUDIBLE) nothing on this.

BLITZER: The State Department says that their budget for the Iraq diplomats, whether the embassy in Baghdad, the consulate in Basra, or most of wherever they have some consulates, is about $4 billion. A lot of that is going to pay for these contractors who aren't just making $50,000, $60,000, or $80,000 a year. Some of them are making hundreds of thousands a year.

KELLY: And that's a big controversy, too, because, you know, contracting was meant to be a stop-gap measure. It was supposed to be a short term thing that U.S. brought in contractors when they needed to when the military couldn't do the job. And then they went away. That was the cost-saving part of contractors. But now that we're looking at 10 years and even longer, looking into the future, obviously, it's not as cheap and cost-saving as we once thought it would be.

BLITZER: Now, you've written an excellent book on Blackwater. So, you are real authority on that subject. Where does Blackwater, whatever its new name is right now, where does it fit into the Iraq contracting situation?

KELLY: Well, you know, they got kicked out of Iraq, Wolf, right after -- beginning of 2008 after that bloody incident in Nisour Square in 2007 when 17 Iraqis were killed. Now, they haven't been allowed to operate in the country.

Eric Prince, if you remember, is that former Navy SEAL, you interviewed him. I think you got one of the first interviews with him after that shooting. He gave up last year and said, I'm walking away. This company is too toxic. I can't do it.

He sold it to a group of private investors and it completely changed everything from top to bottom. They changed the name. They changed the management. They brought in a board of directors, with John Ashcroft, among other people on it. So, they're really trying hard to prove to everybody that they are different company now because there is still so much money to be made in Iraq. And they've got their eye on protecting some of those oil and gas facilities there.

BLITZER: There's a lot of money involved right now. We'll see how it goes. I'm very worried and I wrote about it, as I say, on my blog. Check it out.

Suzanne, thanks very much.

Prime Minister Vladimir Putin has competition in Russia's presidential race. Can an owner of an NBA team give Putin a run for his money?

Plus, we'll tell you how a controversial oil pipeline could make a huge difference in how much money you take home in the coming year.

(COMMERCIAL BREAK)

BLITZER: Lisa Sylvester is monitoring some of the top stories in THE SITUATION ROOM right now.

Lisa, the U.S. Supreme Court has a politically charged calendar coming up. The president's healthcare reform law, they are considering that; Texas redistricting; and now, the Arizona immigration law.

SYLVESTER: Yes, a lot of people are going to be keeping a close eye on the high court, that's for sure, Wolf.

But the U.S. Supreme Court will rule on Arizona's controversial law targeting illegal immigrants, including the block provision that allows police officers to check immigration status during traffic stops. The Obama administration says immigration should be a federal responsibility but Arizona argues the federal government hasn't addressed financial and safety concerns. And Justice Elena Kagan will not hear the case because of her earlier work as solicitor general opposing that law.

And the billionaire once described at 6'8" bachelor and martial arts expert will challenged Vladimir Putin for the presidency in Russia. New Jersey Nets owner Mikhail Prokhorov calls it the most important decision of his life. "Forbes" says he is worth an estimated $18 billions. The move follows a mass protest in Russia against allegedly parliamentary election fraud.

And the convoy of trucks contracted to NATO forces in Afghanistan was attacked by armed men in southwest Pakistan. Police say the gang of motorcyclists killed one driver before setting fire to the tankers. Last night's attack is the second in four days. Pakistan closed NATO supply roots that killed Pakistani soldiers last month.

And security forces in Yemen shut down all roads for the central prison after 15 suspected members of al Qaeda escaped this morning. The men tied to the terrorist cell in the Arabian Peninsula incidents rather dug a nearly 26-foot tunnel to escape. Earlier this week, four guards were killed when a dozen suspected al Qaeda prisoners, escaped -- Wolf.

BLITZER: You hear a lot about prisoners -- al Qaeda guys escaping from prisons in Yemen over the past.

SYLVESTER: It's a concern.

BLITZER: I guess security is not that great or they got insiders helping them.

SYLVESTER: But it is real issue there. That's problem.

BLITZER: It certainly is. Lisa, thank you.

Senator Bernie Sanders is angry. He wants to challenge a U.S. Supreme Court law and who pay for election ads. Listen to this.

(BEGIN VIDEO CLIP)

SEN. BERNIE SANDERS (I), VERMONT: The American people, whether you are a Democrat, independent, from progressive, conservative, do not believe that corporations are people and that corporations should be able to buy elections.

(END VIDEO CLIP)

BLITZER: My interview with Senator Bernie Sanders, that's coming up.

And check out this, $10,000 Mitt Romney bill as the candidate catches lots of flak for a big ticket wager. Our strategy session is coming up as well.

(COMMERCIAL BREAK)

BLITZER: I'm Wolf Blitzer. Here are some of the stories we are working on for our next hour:

Forgiving Newt Gingrich's sins. Has the former speaker repented enough for the religious right? What some powerful voices are saying? Stand by.

Also, warnings of a potential massacre. The deadline is hours away for Syrians in the city of Homs to raise the white flag or face attack by government forces.

And a new sheriff in the sky. How drones are being used right here in the United States to fight crime out west.

Stand by. You're in THE SITUATION ROOM.

(MUSIC)

BLITZER: With Newt Gingrich leading the Republican race for the White House, former colleagues from his days on Capitol Hill are weighing in on his potential nomination.

(BEGIN VIDEOTAPE)

BLITZER: And joining us now from Capitol Hill, Senator Bernie Sanders. He is the independent senator from Vermont.

Senator, thanks very much for coming in.

I want to get to your latest initiative to try to deal with the unlimited amount of money that can go into campaigns, constitutional amendment you are pushing. But let me pick your brain for a minute a little bit on politics while I have you.

Newt Gingrich, I believe you worked in the House of Representatives when he was speaker. Is that right?

SANDERS: I was in the House when he was speaker. That's right.

BLITZER: What do you think of him as potentially Republican nominee?

SANDERS: Well, all can I say is, you know, Mr. Gingrich's views are very different than mine. I think he is out of touch with mainstream America and I suspect he will not be a strong candidate.

BLITZER: Give me one example where he is out of touch with mainstream America.

SANDERS: Actually -- you know, actually, I'm much more interested in talking about Citizens United.

BLITZER: I am, too. But I want to get to it in a minute. But I just -- only because you worked with Newt Gingrich when he was a speaker.

SANDERS: I worked with him. I didn't work with him. I was in the House when he was in the House. He was the Republican speaker. You know, Newt Gingrich is a right wing leader.

And I think that extreme right wing views are not what the American people are looking for right now. They want to see us create jobs. Gingrich does not support a strong jobs program. Rebuilding our infrastructure and putting our teachers back to work.

I think the American people in many cases want to transform our energy system. The American people, which is not Gingrich's view, the American people want to protect strongly Social Security, Medicare and Medicaid, which is also not Mr. Gingrich's Point.

BLITZER: And you also obviously want to extend the payroll tax cut at least for another year so that millions of middle class families, working class families out there, won't see a tax increase.

SANDERS: Well, I am not a great fan of the payroll tax holiday because I'm nervous about what it does to the future of Social Security.

But what I do believe absolutely is that in the middle of a recession, the American middle class and working class needs a tax relief.

And we also have to fund that in a progressive way, i.e, asking the wealthiest people in this country to start paying their fair share of taxes.

BLITZER: If they can't get that, raise taxes on the wealthiest Americans, would you support allowing that pipeline to be built to Canada through the United States, which the Republicans are now demanding as quid pro quo? SANDERS: No, that would be an environmental disaster.

BLITZER: All right, let's talk about your constitutional amendment right now. The Supreme Court says that it is freedom of speech to give money to politicians. What's wrong with that?

SANDERS: Well, what's wrong with that is by 5-4 disastrous decision, the Supreme Court said that Bank of America, ExxonMobil and other corporations are flesh and blood people entitled to first amendment rights.

There is nobody that I know who believes that Bank of America is a human being who should be entitled for the same constitutional rights that the people of our country are.

What's wrong with it is that at a time when money already plays a horrendous role, in terms of what goes on in Congress, what Citizens United has done, is made a terrible situation worse.

Here is what the practical impact of Citizens United means. What Citizens United means is that corporations call hundreds of millions of dollars into television ads, radio ads, and other forms of advertising to defeat those candidates who stand up and take them on.

It also means obviously they can support those candidates who support their agenda. What it means now, is you're going to have an unprecedented, hence and hundreds of millions of dollars coming into the political process, controlled by the wealthiest people in this country and largest corporations.

That, to me mind, is not what American democracy is supposed to be. I just will tell you this. We put up a petition on our web site on Thursday, and in three days, we have over 120,000 names on that petition.

The American people, whether you are Democrat, independent, Republican, progressive, conservative, do not believe corporations are people or that corporations should be able to buy elections.

BLITZER: But it's not just corporations. It's anyone who wants to create these kinds of super packs. Labor unions, for example, progressives can do the same thing. In fact, some of President Obama supporters have generated some super pacs to generate support for their respective causes.

SANDERS: That's absolutely right. Anybody can do it. My guess is that Republicans will be the major beneficiaries, but it doesn't matter. It doesn't matter if it's Republicans. It doesn't matter if it's Democrats.

In my state, we have town meetings. People vote on their school budget, one person, one vote. People fought and died to defend democracy in this country, with the understanding that all of us together are what makes the democratic process real.

Most people that I know don believe that a handful of corporations request sit together without disclosure, by the way, and pump hundreds and hundreds of millions of dollars into the political process. That is not the democracy that many of us believe America should be.

BLITZER: So basically, just to wrap this up, whether it is done by the Koch brother, let's say, on the right or George Soros on the left, you hate this, and you want to see it changed?

SANDERS: This is going to be a real blow to the American democratic process, no matter who is funding it. What it means in practical sense is that when somebody comes up to vote, walks up to the table in the Senate and decides whether or not to vote against Wall Street, vote against drug companies, vote against the coal companies.

They're going to be thinking. If I cast that vote, will I go home next week and find millions and millions of dollars of corporate campaign ads this come back against me. So it allows countries who already have enormous power to have even more power.

BLITZER: We're out of time. Very quickly, the last time we spoke, you weren't yet ready to endorse President Obama's re-election. Have you made up your mind?

SANDERS: Well, President Obama is I believe strong to be candidate. I believe in President Obama begins the fight of the working family in this country, show working people that he's going to stand up to big money interest. I think he will win this election and I look forward very much to supporting him.

BLITZER: All right. That's a change from our last conversation, always good, Senator, to speak with you. Appreciate it very much.

Republican Mitt Romney is catching heat for challenging a fellow presidential candidate to a big dollar wager. How damaging is that bet? Is it biting back? What's going on?

And Christmas in Washington with President Obama and it comes at a time when Rick Perry is accusing President Obama of a war on religion. Not necessarily.

(COMMERCIAL BREAK)

BLITZER: Let's get to our strategy session. Joining us right now, the Democratic strategist and CNN contributor, Donna Brazile and the conservative commentator, Rich Galen. Guys, thanks very much.

Everyone is still talking about the exchange that occurred Saturday night in that ABC News Republican presidential debate between Romney and Berry. Watch.

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: You know what, you raised that before, Rick and you are --

PERRY: It was true then. It is true now.

ROMNEY: Rick, I tell you what, 10,000 bucks, $10,000 bet?

PERRY: I'm not in the betting business.

(END VIDEO CLIP)

BLITZER: That is an unforced on the part --

RICH GALEN, FORMER COMMUNICATIONS DIRECTOR TO SPEAKER NEWT GINGRICH: I watched it. It didn't strike me that way. Nobody -- he's never -- Romney's never pretended to be that he grew up in a log cabin.

Everybody knows he has that. That happened to be the number that came into his head. I did Tweet, if I were adviser Romney, is to make a $10,000 donation in Perry's name to a charity to get rid of it.

DONNA BRAZILE, CNN CONTRIBUTOR: I thought it was the worst -- I call it a silver foot in your mouth moment. We had other rich politicians run. They normally know how to talk about issues that don't offend people.

But this was his Wall Street moment. You know, he was speaking for the 1 percent, not the 99 percent. I thought it was a big gaff. People are still talking about it.

BLITZER: Mormons are not supposed to gamble. Did you know that?

GALEN: And we're not supposed to eat bacon, but there you are.

BLITZER: Did you know that Mormons are not supposed to gamble?

BRAZILE: No, I'm not familiar with that at all.

BLITZER: But he is a pretty religious Mormon.

BRAZILE: But well, if I did gamble, I would never bet $10,000.

GALEN: Don't start with me.

BRAZILE: No food and liquor is different.

BLITZER: Mitt Romney was on Fox this morning. He had this exchange with the Fox anchor and then I'll play how Newt Gingrich is responding.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Do you believe that since he took money from Freddie and Fannie that pretty much hated agencies now. Do you believe he should give that money back?

ROMNEY: I sure do. NEWT GINGRICH (R), PRESIDENTIAL CANDIDATE: I would just say, that if Governor Romney would like to give back all of the money he earned from bankrupting companies and laying off employees, over his years at bane, I would be glad to then listen to him.

(END VIDEO CLIP)

BLITZER: That's heating up a little bit between the two front runners.

GALEN: This is great. This is what we live for. They are supposed to do this. You want to have people not hiding behind their handlers, not behind talking points, but actually kind of getting angry or at least getting annoyed with each other. I think that's good for the process.

BLITZER: It is still relatively tame when you think about it. I think in part because they are afraid if they get too brutal with each other, it is only going to be good for Democrats and for President Obama's re-election campaign.

BRAZILE: Remember back in 2004 when Gephardt and Howard Dean got into this big brawl. And John Edwards and John Kerry came up the middle. This will only help candidates like Rick Perry, and of course, Michele Bachmann and others if they continue to do this tit for tat.

GALEN: I don't remember that Barack Obama and Hillary Clinton were playing that nicely with each other all the way until June of the on year.

BRAZILE: Yes, but that campaign didn't get heat up until the -- what I call the final quarter back in November. It was never like tit for tat like this until January.

GALEN: The 3:00 call.

BLITZER: All the talk, all of the Republican conservative talk about -- and Rick Perry has an ad, President Obama's war on religion, war on Christmas.

Last night here in Washington, our sister network TNT, hosted a Washington pageant. I will play an excerpt because it was good.

CONAN O'BRIEN: It is especially exciting to be here during joyous season when we celebrate the arrival of a miracle child worshipped by millions around the world. Speaking of course, of Justin Bieber.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The story of Jesus Christ changed the world. For me and for millions of Americans, his story has filled our hearts and inspired our lives.

(END VIDEO CLIP)

BLITZER: If there's a war on religion from this president or a war on Christmas, it certainly wasn't evident.

GALEN: You want to replay the whole thing? Just replay the whole hour and we will just stand around and watch.

BRAZILE: It was beautiful.

BLITZER: It was a beautiful evening.

GALEN: It was beautiful but just, please -- CNN, just couldn't be more, you know, on one side of this thing.

BLITZER: Well, you think there is a war -- this president has a war on religion?

GALEN: No.

BLITZER: Rick Perry does.

GALEN: I'm not defending Rick Perry. Let's see what Rick Perry had to say or you don't have it, I see.

BLITZER: We had that ad from Rick Perry on several occasions.

BRAZILE: But Wolf, I think there's another issue here. And that is for years I've heard this criticism from conservatives. Not rich, but others. That somehow the liberals don't care about religion, we don't care about our faith.

President Obama is a man of tremendous faith. Because he doesn't go to church every 5 minutes and talk about his relationship with god doesn't mean he doesn't care.

GALEN: I don't disagree with a single syllable you just said, but issue has been that you can't say Christmas tree. You can't have a manger on public property. That's the kind of thing that gets I think --

BLITZER: That's what the courts can decide. By the way, if you want to see the whole hour, and I know you do, Rich.

GALEN: I do.

BLITZER: Friday night on our sister network, TNT, p.m., you will watch it and see if this president has a war on religion and war on Christmas.

BRAZILE: I love Christmas, Hanukkah.

GALEN: CNN has a war on Republicans is the issue.

BLITZER: Well, you here, right? Do you have a war on you?

BRAZILLE: Old stereo types. There you go. Give peace a chance. BLITZER: Thanks very much. Republican presidential frontrunner, Newt Gingrich is stepping up efforts to reach the Evangelical right. Can catholic conversion, three marriages and questions about fidelity stand by?

And the U.S. response to that lost drone in Iran. Dick Cheney has his own ideas about that and they don't include saying please. Erin Burnett has a preview of her exclusive interview with the former vice president.

(COMMERCIAL BREAK)

BLITZER: Former Vice President Dick Cheney had his way, there wouldn't be much left of the U.S. drone that went down in Iran. Dick Cheney sat down for an exclusive interview with our own Erin Burnett, the host of "ERIN BURNETT, OUT OF FRONT."

Erin is joining us from New York. All right, what did he have to say, Erin?

ERIN BURNETT, HOST, CNN'S "OUT FRONT": Wolf, we talked about a lot of things including whether he feels the Arab spring was a result of U.S. actions in Iraq, but I asked him specifically about this drone.

As you know, Wolf, we have been talking a lot about this drone, the RQ Sentinel 170, one of the most highly sophisticated and classified pieces of American military technology with this crucial radar equipment.

Now the Iranians and perhaps the Chinese have their hands on it because it is obviously in Iranian hands. I asked the vice president if he would have done what the Obama administration did, which was ask for it back. Here's how he answered that question.

(BEGIN VIDEO CLIP)

DICK CHENEY, FORMER VICE PRESIDENT OF THE UNITED STATES: The right response to that would have been to go in immediately after it went down and destroy it.

You could do that from the air. You could that a quick airstrike and make it impossible for them having captured that drone. I was told the president had three options on his desk. He rejected all of them.

BURNETT: And they all involved --

CHENEY: They all involved sending somebody in you know, to try to recover it or if you can't do that, and admittedly that would be a difficult operation.

You certainly could have destroyed it on the ground with an airstrike, but he didn't take any of the options. He asked nicely for them to return it. And they aren't going to do that.

(END VIDEO CLIP) BURNETT: Wolf, we all saw the president talk about it today and say he wasn't going to talk about anything classified, but he had requested the Iranians return the drone. You know, I've been hearing and former secretary of the defense, William Cohen, I spoke to him on Friday.

He was saying, look, there is no doubt that Iran will share this technology with the country like China, which has the ability to reverse engineer that radar evading technology.

They are only a generation behind the U.S. when it comes to their J-20 and now with this technology, it could get that crucial radar evading ability. So this drone is a really important issue.

BLITZER: I was surprised when the president said publicly in that news conference, with the Iraqi Prime Minister Nouri Al-Malaki, he didn't want to get into classified information.

But he did confirm that the U.S. has asked the Iranian regime to return that drone to the United States and he said let's see what they say. I was surprised that he even went that far.

BURNETT: Yes, I was surprised that he went that far. I didn't expect him to say that either. And of course, if they return it, in what condition will it be returned, right?

It won't be returned before it is observed and everything that could be gleaned from it is. And so I don't think this means that somebody didn't take out the crucial technology.

BLITZER: Good exclusive coming up with Dick Cheney later tonight at 7 p.m. Eastern, Erin Burnett, "OUT FRONT." We will be watching as we do every weekday. Erin, thanks very much.

BURNETT: Thanks, Wolf.

BLITZER: Congress is scheduled to wrap up business for the year this Friday. But there is no agreement on extending the payroll tax cut for millions and millions of Americans.

Republican leaders now predict there can be one in time. The Speaker John Boehner getting ready to hold a news conference. Let's go to Capitol Hill right now. Our congressional correspondent, Kate Bolduan is standing by live. What's the very latest, Kate?

And the with the clock ticking, there is much more than just scoring political points at stake.

(BEGIN VIDEOTAPE)

BOLDUAN (voice-over): Nineteen days until the payroll tax expires. But just four days before Congress had hoped to leave Washington for the rest of the year. Still, no sign of compromise on Capitol Hill.

SENATOR DICK DURBIN (D), ILLINOIS: Should we ask the wealthiest in America to pay a little more in taxes so we can provide a payroll tax cut for almost 160 million Americans? That's it. What we hear from the other side of the aisle, over and over again is, is no.

SENATOR MITCH MCCONNELL (R), MINORITY LEADER: The only reason, the only reason for Democrats to oppose this job creating bill would be to gain some political advantage. At a time when every one of them says job creation is a top priority.

BOLDUAN: The House is set to vote Tuesday on a Republican proposal to extend the employee payroll tax cut, extend unemployment assistance and prevent scheduled cuts in Medicare payments to doctors.

Republicans are also demanding the bill also have a measure speeding up the approval of the Keystone pipeline project. That is likely to hit a brick wall in the Senate.

President Obama has warned he will not reject such a move and the Senate Democratic leaders say it won't even get that far.

DURBIN: Let's not stop the business of government. Let's not stop helping this economy recover over one issue, whatever it maybe whether it's a pipeline or whatever it may be.

BOLDUAN: And this is much more than just another political boxing match. About 160 million people will see their payroll taxes go up if the cut expires.

Some 5 million people would stop receiving unemployment benefits next year and doctors would see almost 28 percent cut in the rate they are reimbursed through Medicare that would make it tougher to treat Medicare patients.

(END VIDEOTAPE)

BOLDUAN: Even with so much at stake here and time running out, still, there is no agreement in sight. So at the moment, all eyes turn over to the House, Wolf, with its expected vote tomorrow. Unfortunately, we have to remind our viewers this is one more showdown that we are watching unfold -- Wolf.

BLITZER: It seems to happen every few months. You will be busy Kate, stay in touch. Let us know what is going on because the stakes are enormous. Kate Bolduan up on Capitol Hill.

Plus, why the man who murdered five American soldiers in Iraq may soon walk free. This is a shocking story. You'll see it. You'll hear it, right here on THE SITUATION ROOM.

(COMMERCIAL BREAK) BLITZER: Look at this hour's "Hot Shots." In California, a police officer in riot gear stands guard during an occupy demonstration in Oakland. In India, mourners light candles and flowers to pay respects to those who died in last week's hospital fire.

In Qatar, athletes compete in an archery qualification round at Pan Arab games. In Japan, check it out, a sea lion sports a pair of antlers in an aquarium. "Hot Shots," pictures coming in from around the world.

Jack Cafferty is joining us right now with the Cafferty file -- Jack.

JACK CAFFERTY, CNN ANCHOR: If Congress is so bad, and by the way they are, why do half of the Americans say their own member of Congress deserves to be re-elected?

Evan in Texas says, "I was in Australia when George W. Bush was re-elected. People kept coming up and asking me how a simpleton like him could be elected or re-elected. I could only respond that there are a lot of people who are smart enough to not know any better. I think that's the answer to your current question.

David in New Hampshire, "Because their opponents are just like them. Should I vote for Mr. Hopeless or Mr. worthless? Hell with it, I'll just stay with Mr. Useless.

Jenny in Seattle, "Bad House leaders, horrible Senate leaders, the constituent think it is more important to have a committee chairman than a moral leader. Our country is imploding and power mongers undermine our community with special interest favors that are unsustainable."

Mac writes, "Thanks to gerrymandering. The incumbents can virtually be assured that they're going to stay in office. This was part of why you see these protests in the streets. The old system is broken and it must be changed."

Lou writes, "Because with a two party system, you get to choose between the do nothing incumbent or one of the crazies from the other party. That's it. It's no wonder half of Americans don't even bother to vote anymore."

Pat in Idaho writes, "I don't know about that. I'm voting to replace the ones in my state. If you want to read more on this, go to my blog, cnn.com/caffertyfile or through our post on THE SITUATION ROOM'S Facebook page -- Wolf.